Monetary Policy Spillovers and Currency Networks in Cross-Border Bank Lending: Lessons from the 2013 Fed Taper Tantrum*

Abstract

Abstract We show that currency networks in cross-border bank lending have a significant impact on the size, distribution, and direction of international monetary policy spillovers. Utilizing a novel dataset, we map the major currency networks in international banking and show that the US dollar dominates at the global level. Next, we provide evidence that during the 2013 Fed taper tantrum, the degree of exposure to US dollar lending had a significant impact on cross-border bank lending growth. Most notably, it had a strong negative impact on cross-border flows to emerging markets.